UPDATE 2-Marathon Petroleum eyes cheap US domestic crude

Reuters Staff

5 Min Read

* Marathon to take over BP’s Texas City refinery on Friday

* Company to operate Capline pipeline

* CEO Heminger says Utica condensate production “prolific”

By Selam Gebrekidan

Jan 30 (Reuters) - Marathon Petroleum said on Wednesday a series of projects will improve its access to cheap domestic crude and boost its U.S. refinery profits as it seeks to benefit from the nation’s energy boom.

The company plans to ship more crude form North Dakota’s Bakken shale and Canadian tar sands to its Midwest plants and outfit its Ohio and Kentucky facilities to process increasing volumes of Utica condensate. It also hopes to take advantage of increasing Eagle Ford shale and Permian basin crude supplies at its Gulf Coast refineries.

Output from these shale prospects has jumped in the last few years, with the Bakken and Eagle Ford alone accounting for more than a million barrels-per-day of US production in November, data from state regulators show.

Marathon President and Chief Executive Gary Heminger said he expects shale oil supplies to the Gulf Coast will grow in the coming months and keep a lid on the price of U.S. light crude oil.

This is a boon for his company, which operates the 490,000 barrels-per-day Garyville refinery in Louisiana and will complete its $2.5 billion purchase of BP’s Texas City, Texas plant on Friday.

Still, Heminger said, Marathon will continue to process foreign crude at its Gulf Coast refineries. He declined to specify the type of crude oil the company intends to import.

“We do not expect to see any material change to the foreign barrels that we’re bringing into our system today,” Heminger added.

Earlier, Mike Palmer, Marathon’s vice president and head of supply, distribution and planning, had said that there will be no “material volume of foreign cargo sweet crude left in the Gulf” this year.

Findlay, Ohio-based Marathon imports about 25 percent of the total crude oil it processes at its U.S. refineries. The firm has also taken advantage of cheap inland crude, which helped it beat Wall Street estimates and secure fourth-quarter profits to the tune of $755 million.

MIDWEST PLANS

Marathon will be the anchor shipper on Enbridge Inc’s proposed Southern Access Extension, which will transport crude oil from Flanagan, Illinois, near Chicago to Patoka, Illinois, a crude storage and blending hub.

Enbridge announced an open season for the 165-mile (265 Km), oil pipeline in December. The line will have 250,000 bpd capacity when it starts operating in early 2015 and will connect to Enbridge’s Lakehead system.

This will complement Marathon’ recent and ongoing investments in its Midwest refineries. The company spent $2.2 billion to add 80,000 bpd of heavy Canadian crude processing capability to its Detroit refinery last year.

Another $75 million project at its 206,000 bpd Robinson, Illinois refinery will shift 10,000 bpd of the plant’s output to diesel.

Marathon will also begin to operate the 633-mile, Louisiana-to-Illinois Capline pipeline starting in September 2013, taking over from previous operator Royal Dutch Shell Plc .

The company did not immediately disclose plans to reverse the line, which now transports a fraction of the volumes it shipped in the late 1960s, as increased U.S. and Canadian depressed the Midwest’s demand for crude oil imports from the Gulf Coast.

“It will continue to operate on a south-to-north fashion as it has since the beginning of time. It takes all three owners to agree to make any change to the flow so that remains to be seen,” Heminger said.

UTICA HOPES

Marathon is ramping up its investments to process crude oil and condensates from Ohio’s Utica shale even as the prospect’s crude oil output lags far behind previous growth forecasts.

To that end, it will spend some $300 million through 2014 to build infrastructure and buy new barges that will ship condensates from its Wellsville asphalt terminal in Ohio to its refinery in Kentucky.

It will also set up condensate splitters at its Canton, Ohio and Catlettsburg, Kentucky refineries to process up to 60,000 barrels per day of Utica condensate.

“The early position on the crude production has been challenged. But the condensate section of the play has been prolific,” Heminger said.